GGXY Golf Galaxy (MM)

Company Reports Second Quarter Net Income of $5.4 million EDEN PRAIRIE, Minn., Sept. 22 /PRNewswire-FirstCall/ -- Golf Galaxy, Inc. (NASDAQ:GGXY), a golf specialty retailer, today announced its financial results for the second quarter of fiscal 2006. (Logo: http://www.newscom.com/cgi-bin/prnh/20050728/CGTH081LOGO ) Net sales for the second quarter of fiscal 2006 increased 46.5 percent to $69.6 million, compared to $47.5 million in the same period of the prior year. The company reported net income for the quarter of $5.4 million, or 59 cents per diluted share on a GAAP basis, compared with net income of $3.5 million, or 46 cents per diluted share on a GAAP basis, in the second quarter of the prior year. Giving effect to the conversion of preferred shares and the company's initial public offering as of the beginning of each period presented, pro-forma diluted earnings per share in the second quarter of fiscal 2006 increased 48.5 percent to 49 cents, compared with pro-forma diluted earnings per share of 33 cents in the second quarter of fiscal 2005. A reconciliation of pro-forma earnings per share is provided in a table that follows. Comparable store sales increased 7.4 percent for the second quarter of fiscal 2006 compared to an increase of 5.9 percent for the second quarter of fiscal 2005. The company considers a store to become comparable in its 13th full month of operations. Net sales for the six months ended Aug. 27, 2005 increased 49.1 percent to $128.2 million, compared with $86.0 million in the 2005 fiscal period. Golf Galaxy reported net income of $7.1 million, or 83 cents per diluted share on a GAAP basis, for the six months ended Aug. 27, 2005, compared with net income of $4.6 million, or 60 cents per diluted share on a GAAP basis, for the first six months of the prior fiscal year. Pro-forma diluted earnings per share for the six months of fiscal 2006 increased 48.8 percent to 64 cents, compared to 43 cents per diluted share for the six months ended Aug. 28, 2004. Comparable store sales increased 8.8 percent in the first six-months of fiscal 2006, compared to an increase of 6.6 percent in the same period of fiscal 2005. "We are pleased with our results in the second quarter, which is our most important quarter from both a sales and profit standpoint," said Randy Zanatta, president, chief executive officer and chairman. "We not only achieved strong sales and earnings in the quarter, but also completed our initial public offering. We believe this demonstrates the capacity of the company and the depth of the Golf Galaxy team." Golf Galaxy opened 11 new stores in the first six months of the fiscal year. At the end of second quarter fiscal 2006 Golf Galaxy operated 45 stores in 19 states. On Aug. 3, 2005, Golf Galaxy completed its initial public offering of 4,542,500 shares of common stock, of which 3,000,000 were offered by the company, at a price of $14.00 per share. As part of the offering, existing preferred stock was converted to common stock and a portion of the proceeds of the offering was used to pay accumulated dividends to preferred shareholders. Company Outlook The company said that for the third quarter of fiscal 2006: -- Sales are currently expected to be $30 million to $32 million, an increase of 48 percent to 58 percent over the third quarter of fiscal 2005; -- Comparable store sales are currently expected to increase 2 percent to 6 percent; and -- The company currently expects a net loss of $2.2 million to $1.8 million. The company further said that for fiscal 2006: -- Sales are currently expected to be $197 million to $202 million, an increase of 48 percent to 52 percent over fiscal 2005; -- Comparable store sales are currently expected to increase 6 percent to 8 percent; -- Net income is currently expected to be $4.5 million to $5.1 million; and -- The company remains on track to open 16 new stores in the current fiscal year, having recently announced four stores to be opened in November 2005. Golf Galaxy said that sales were negatively affected in the weeks following Hurricane Katrina. Furthermore, higher gasoline and energy prices are resulting in higher freight costs and utilities expenses at the company's stores, and may impact consumer spending. The company's outlook for fiscal 2006 reflects the company's best estimates at this time of the anticipated impact of these events on its future results. Conference Call and Webcast Golf Galaxy will hold its second quarter earnings conference call at 10am CDT today, Sept. 22, 2005. Interested parties may listen to the call by dialing 866-800-8652 or international 617-614-2705 (passcode: 56110018). A live webcast will also be available on http://www.golfgalaxy.com/ . Interested parties should dial into the conference call or access the webcast approximately 10-15 minutes before the scheduled start time. A replay will be available approximately one hour after the conference call concludes and will remain available through Sept. 29. The replay number is 888-286-8010 or international 617-801-6888 (passcode: 50710641). The webcast will be archived on http://www.golfgalaxy.com/ for approximately one year. About Golf Galaxy, Inc. Golf Galaxy, Inc., based in Eden Prairie, Minn., owns and operates golf specialty retail stores. The company currently operates 45 stores in 19 states and an ecommerce website. The company's Everything for the Game(R) merchandising strategy offers a comprehensive selection of competitively priced brand name golf equipment, accessories, apparel, golf services, and golf instruction by on-staff certified PGA professionals in a unique interactive store environment. For more information visit http://www.golfgalaxy.com/ . Cautionary Statement This news release contains forward-looking statements about Golf Galaxy and readers should not place undue reliance on any forward-looking statements that are current only as of the date made. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those expressed in forward-looking statements. The factors listed below, among others, could cause the company's actual financial performance to differ materially from that expressed in any forward-looking statement: A decline in the popularity of golf or golf-related products and services; limitations imposed by suppliers on the amount or variety of products; failure by suppliers to develop and introduce new products or if new products result in excessive close-outs of existing inventories; seasonal fluctuation in demand for products; weather conditions; ability to successfully implement growth plan; competition in the golf and sporting goods industry; a decline in discretionary spending; availability of adequate capital to fund growth; and loss of key management. Additional information concerning these and other factors that could cause actual results to differ materially from those in the forward-looking statements is included in the company's prospectus in its Form S-1 Registration Statement on file with the Securities and Exchange Commission. The foregoing list should not be construed as exhaustive and Golf Galaxy disclaims any obligation subsequently to revise or update any previously made forward-looking statements, whether as a result of new information, future events or otherwise. Tables Follow GOLF GALAXY, INC. CONDENSED BALANCE SHEETS (In Thousands) August 27, August 28, 2005 2004 February 26, (unaudited) (unaudited) 2005 (1) Assets Current assets: Cash and cash equivalents $26,387 $14,084 $3,245 Accounts receivable, net 8,118 3,845 3,455 Inventories, net 36,694 21,774 30,415 Prepaid expenses and other current assets 3,967 4,673 3,510 Total current assets 75,166 44,376 40,625 Property and equipment, net 23,434 13,576 21,832 Other assets 2,562 2,141 2,680 Total assets $101,162 $60,093 $65,137 Liabilities and shareholders' equity (deficit) Current liabilities: Accounts payable $21,984 $16,877 $15,826 Accrued liabilities 12,183 10,151 11,675 Total current liabilities 34,167 27,028 27,501 Deferred rent credits and other 10,664 5,299 6,831 Redeemable convertible preferred stock, including accumulated preferred stock dividends - 46,865 48,741 Shareholders' equity (deficit) 56,331 (19,099) (17,936) Total liabilities and shareholders' equity $101,162 $60,093 $65,137 (1) The Balance Sheet as of February 26, 2005 has been condensed from the audited financial statements. GOLF GALAXY, INC. CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED (In Thousands, Except Share and Per Share Amounts) Three Months Ended Six Months Ended (Unaudited) (Unaudited) August 27, August 28, August 27, August 28, 2005 2004 2005 2004 Net sales $69,635 $47,540 $128,205 $85,959 Cost of sales 47,565 32,665 87,907 59,521 Gross profit 22,070 14,875 40,298 26,438 Operating expenses: Store operating 10,773 7,127 21,705 14,099 General and administrative 2,155 1,842 5,257 3,989 Preopening 40 46 1,350 564 Income from operations 9,102 5,860 11,986 7,786 Interest income (expense), net 100 4 115 (32) Income before income taxes 9,202 5,864 12,101 7,754 Income tax expense (3,755) (2,351) (4,961) (3,116) Net income 5,447 3,513 7,140 4,638 Less preferred stock dividends (723) (919) (1,721) (1,820) Net income applicable to common shareholders $4,724 $2,594 $5,419 $2,818 Net income per share: Basic $0.98 $1.39 $1.62 $1.51 Diluted $0.59 $0.46 $0.83 $0.60 Weighted average number of shares outstanding: Basic 4,801,458 1,861,945 3,342,714 1,861,945 Diluted 9,211,662 7,703,512 8,634,726 7,703,512 GOLF GALAXY, INC. CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED PRO-FORMA EARNINGS PER SHARE (In Thousands, Except Share and Per Share Amounts) Three Months Ended Six Months Ended (Unaudited) (Unaudited) August 27, August 28, August 27, August 28, 2005 2004 2005 2004 Pro-Forma Information (1) Pro-forma net income applicable to common shareholders $5,447 $3,513 $7,140 $4,638 Pro-forma net income per share: Basic $0.51 $0.33 $0.67 $0.44 Diluted $0.49 $0.33 $0.64 $0.43 Pro-forma weighted average number of shares outstanding: Basic 10,636,436 10,614,412 10,636,436 10,614,412 Diluted 11,211,662 10,703,512 11,134,726 10,703,512 Reconciliation of pro-forma information to GAAP Net income applicable to common shareholders (GAAP) $4,724 $2,594 $5,419 $2,818 Preferred Stock Dividends 723 919 1,721 1,820 Net income applicable to common shareholders (Pro-forma) $5,447 $3,513 $7,140 $4,638 Basic Weighted average number of shares outstanding (GAAP) 4,801,458 1,861,945 3,342,714 1,861,945 Conversion of preferred stock to common 3,834,978 5,752,467 4,793,722 5,752,467 Weighted average additional shares issued in IPO 2,000,000 3,000,000 2,500,000 3,000,000 Weighted average number of shares outstanding (Pro-forma) 10,636,436 10,614,412 10,636,436 10,614,412 Diluted Weighted average number of shares outstanding (GAAP) 9,211,662 7,703,512 8,634,726 7,703,512 Weighted average additional shares issued in IPO 2,000,000 3,000,000 2,500,000 3,000,000 Weighted average number of shares outstanding (Pro-forma) 11,211,662 10,703,512 11,134,726 10,703,512 (1) The Company believes the use of pro-forma results provides important supplemental information due to the significant increase in common shares outstanding resulting from the Company's initial public offering and the conversion of the convertible preferred stock into shares of common stock effective on August 3, 2005. The pro-forma information is presented as if these events had occurred immediately prior to the beginning of each period presented. Contact: Investors: Rick Nordvold Golf Galaxy, Inc. 952-941-8848 Investors and media: Susan Eich For Golf Galaxy, Inc. 612-285-4188 http://www.newscom.com/cgi-bin/prnh/20050728/CGTH081LOGO http://photoarchive.ap.org/ DATASOURCE: Golf Galaxy, Inc. CONTACT: Investors, Rick Nordvold of Golf Galaxy, Inc., +1-952-941-8848; or Investors and media, Susan Eich for Golf Galaxy, Inc., +1-612-285-4188 Web site: http://www.golfgalaxy.com/

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